EUR/USD Slides on Deteriorating ZEW Economic Sentiment

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EUR/USD Slides on Deteriorating ZEW Economic Sentiment

The ZEW Economic Sentiment data for Germany and the Eurozone as a whole both came in much worse than expectations today weighing on the EUR/USD.

German ZEW Economic Sentiment
August: 8.6, Forecast: 18.2, July: 27.1
German ZEW Economic Sentiment Aug 2014

(source: forexfactory, click to enlarge)

Eurozone ZEW Economic Sentiment
August: 23.7, Forecast 41.3, July: 48.1
Eurozone ZEW Economic Sentiment August 2014

(source: forexfactory, click to enlarge)

As you can seen on the historic charts from Forexfactory.com, sentiment has been positive since 2013, but has been trending down during 2014. Why?
1) Growth has been subdued in the Eurozone. ex: Italy went back into recession.
2) Lingering credit crunch problems.
3) Increased geopolitical tensions, especially the Ukraine-Russia (explains the faster drop-off in the sentiment reading in Q3 so far). We also know of the recent ISIS issue in Iraq, the Israel-Gaza conflict, and other flare ups in the middle east region like in Syria.

On top of the downtrend in sentiment, the ZEW data points have missed forecasts in most of 2014.

Amid the deterioration in economic conditions and sentiment in the Eurozone, we saw the EUR/USD top off in May after establishing the high on the year at 1.3993. Last week, the pair fell to 1.3333 and formed a double bottom as can be seen in the 4H chart. However, price failed to extend the double bottom breakout and drifted lower to start the week. Then the EUR/USD took the plunge during the release of the ZEW Economic Sentiment data.

EUR/USD 4H Chart 8/12
eurusd 4h chart 8/12

(click to enlarge)

The 4H chart shows a very bearish market. 
1) The 200-, 100-, and 50-period simple moving averages are sloping down, in bearish alignment, and price is trading below them.
2) The RSI has tagged below 30 and even 20, but has held below 60 during pullbacks. This shows maintenance of the bearish momentum in this time-frame.

With the bearish trend and momentum intact, EUR/USD looks poised to test and break that 1.3333 low from last week, which would expose the Nov. 2013 lows in the 1.3295-1.33 area. 

With the EUR/USD market signalling bearish continuation, we look for sellers to limit a pull back to 1.3380. A break above 1.34 can reintroduce the consolidation scenario into consideration. Otherwise, the EUR/USD is very bearish, and the has the 1.3295-1.33 area in sight in the short-term, and upside risk limited to 1.3380 in the near-term.

To contact the reporter of this story, email Fan Yang at fan@forexminute.com
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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.